Unlocking the Future: Navigating the Path to Becoming an Actuary and Embracing Technological Advancements.
Bill Marella: Welcome, everyone. I'm pleased to have you with us again. I am joined today by Robert Eaton, who is a principal and consulting actuary at Milliman. He's also an SOA board member and a new ACTEX author. Welcome, Robert.
Robert Eaton: Bill, thanks so much. I'm very glad to be here talking with you.
BM: Today's topic is the actuarial career, and Robert's going to go into typical projects and jobs and help educate our listeners on some of the opportunities within the actuarial profession. So with that, Robert, I'll let you take it from here. Let's talk about some of the different jobs and project work that actuarial science majors can look forward to.
RE: There's a number of different things I would consider fairly typical work that's done by actuaries at the beginning of their career. For starters, I think it's important to know that you'll probably be working with a lot of data. That data may come in databases and may reside on the cloud. It may come through Excel files.
What we learn as actuaries is to use that data to make our estimates for the use of our customers, our shareholders, and our policyholders. So, the way that that takes shape is usually through something like developing premium rates or pricing of new products, or evaluating whether or not a certain assumption is valid, or creating new assumptions.
We know that there's a lot of work with data. This is why the term data science is emerging. There is a new form of data scientists. Actuaries are very much of the same ilk, I find. Actuaries will use that data and blend it into models in order to make our predictions.
So we talked about pricing. Another thing we do is project future cash flows for what's called reserving or valuation. That's where actuaries go through the exercise of calculating the liabilities that the company should hold on their balance sheet in order to satisfy their future obligations.
Those are two of the very traditional roles that actuaries do and what you'll be doing probably in your first years in the actuarial career.
BM: Yeah, both are critically important to the profitability of the insurance company and its ability to pay out to policyholders. It's central. The actuarial profession is central to what an insurance company does. In those jobs, what are some interesting projects that you feel you'd like to highlight about the profession, whether it be more on the pricing side or on the reserve/valuation side?
RE: Reserves are often set as a starting point by regulation. Regulation determines how reserves are set. I know this might not sound interesting on the surface, but for those of us who really enjoy problem solving and understanding new complex tasks, some of the new principles-based reserving that life insurers do, is really engaging to go through the exercise of determining the stochastic reserves and all of the different ways to calculate your liabilities for a variety of complex products. So those reserves themselves constitute pretty interesting projects, especially as you’re updating old models to new models.
But if that's still too dry for you, we are also using really cool predictive models built now. These are models like gradient boosted machines or generalized linear models to make estimates in new ways about future events. We use those models for clustering to determine which kinds of sets of features in our data are similar to others or in other ways we train predictive models to make new estimates about specific events. Whether that be ER visits or long term care incidences in home health and assisted living or nursing home setting, there's all sorts of uses for these kinds of models. And I expect someone entering this profession today to get in on that right away.
BM: It's a very dynamic profession. It is constantly changing. Technology is changing. The regulations are changing. The modeling software is getting more sophisticated. AI, all of these things. So there are a lot of trends.
Insurtech: that’s kind of a big buzzword right now, and it’s off and running. Why don’t you talk a little bit about what it is and the types of roles actuaries are playing in Insurtech.
RE: I think philosophically Insurtech is just the application of new technologies into insurance, and we see new technologies being injected into the entire value chain of insurance.
Insurance in its essence is a promise between a company and a policyholder to provide some benefit when some future contingent event happens. That policy has to first be sold, marketed to a customer, an application has to be given and filled out, premiums have to be processed over the lifetime of the policy, claims eventually processed, and, finally, maybe the contract is terminated. Even throughout that life cycle, there are many different changes that may happen. I see Insurtech companies placing themselves into every single point along that chain.
If you asked me 10 years ago where the new technology in insurance would be, I would have said, “back office.” I would have said something like, “we’re actually moving our actuarial valuation projections to the cloud.” It doesn’t sound sexy or novel these days, but in fact, that was a revolution that somebody who was a valuation actuary that spent a week and a half at a major company running these models in tandem with other professionals in their organization, could now send that off to a cloud server in 1000 nodes and get their results quickly. That allows the actuary to do more actual thinking on their own about the results and pivoting and making adjustments as necessary. It really frees us up to do other, more interesting work.
Today I think we're kind of moving more to the front office. I went to Insurtech Connect – a massive conference in Las Vegas – and the companies there are now starting to be more customer-focused and customer-facing, meaning, these companies want to be the platform on which the policy is administered.
There's a lot of direct-to-consumer products that you'll probably see if you say the words “life insurance” enough while some of your social media apps are up. Suddenly you're going to start getting ads for many of these companies that are selling these products directly to you through accelerated underwriting, et cetera.
There's a variety of ways that Insurtech companies have come in to hit the value chain of insurance. The one that's kind of closest to me, Bill, is where Insurtech ideas are actually changing the way that the products look themselves. We see this a lot in the supplemental benefits space. We see this a lot in the life insurance space. We're even starting to see a little bit of it in the long term care space. So very exciting times ahead.
BM: I agree. It is an exciting time. And there's also a lot of talk about AI and it just seems to be a tool that actuaries can use to augment their skills even further and elevate the level of analysis. If you want to talk to that point, then we’ll probably wrap it up for this particular video.
RE: Actuaries have always ridden the wave of technology. Imagine if you went back to the 1970s to an actuary there and you said, “I know that you’re working on this pricing with this manual spreadsheet – literally a big sheet with columns and rows – or you’re feeding FORTRAN punch cards into the machine.” If you went back to that actuary and said, “I have a computer software model for you, and you click on F5 and insert a couple of assumptions and suddenly your pricing is updated. What do you think you’re going to do with all of your free time?” The actuary would say, “oh, I wouldn’t even have a job.” I am sure the actuary might say that, right? If you can do that, then what is the actuary there for?
But we actuaries have risen to the occasion and found a way to maximize the value of that technology as it’s come along – first through spreadsheets, then through databases and programming, and really using big data; machine learning now and AI are sort of the latest manifestation of that. They’re actually drawing more keen insights into the data that we have as actuaries and even some of the data that we don’t collect – the data we get from other sources.
I think the story is going to continue. We’re going to learn from those insights. We’re going to use them to improve our own businesses, to improve our products, to improve the lives of our policyholders, and also the interests of our shareholders – which are not just our company shareholders, but also the regulators and the citizenry. . . people who rely on our financial products for their own risk mitigation and financial stability. So I do think we’re going to continue to sit atop these waves and to surf for quite a while longer to use these insights to help our businesses more.
BM: I think that's just super exciting. And I feel if students had any concern prior to watching this video, that really directly addresses it. And I completely agree, and all the reading that I've done on it supports that as well. There's a lot of people writing and studying it.
So the profession has a very bright future for sure. We're going to end this video. Robert's going to join us for another video on data science and actuarial science, and we'll get to that next. Thank you for joining us. I hope you enjoyed this YouTube video.
And again, thank you, Robert. We really appreciate it.
RE: Thanks Bill.
Check out the YouTube video below.